Is cryptocurrency trading common in your jurisdiction? And what is the attitude of mainstream financial institutions to cryptocurrency trading in your jurisdiction?
Mainstream financial institutions in Australia have largely stayed away from any involvement with cryptocurrency trading citing money laundering and terrorism financing risks. Industry association bodies have raised concerns in recent times of ‘de-banking’ with banks closing the accounts of a notable number of Australian digital currency exchanges to meet ‘compliance and assurance requirements’.
While the ASX has endorsed blockchain with development plans for its own blockchain-based replacement for its equities clearing and settlement operations, the embracing of blockchain does not extend to cryptocurrencies. In August 2019 the exchange released updated compliance guidance regarding cryptocurrency-related activity, stating that such activities raise ‘significant legal, regulatory and public policy issues’ and its ‘concerns regarding cryptocurrency-related activities have been reinforced and amplified’. The ASX’s position remains that listing a crypto-currency business will need to satisfy stringent listing requirements.
A number of platforms are active in France for cryptocurrency trading; however such platforms (and traders) must now, under the loi PACTE, be licensed by the AMF if they trade cryptocurrencies for fiat money.
Mainstream financial institutions are constrained in their involvement or investments in cryptocurrencies, as the Bank of France strongly recommends a strictly prudent approach – whilst acknowledging that a global and international regulatory framework must (urgently) be developed in this respect.
Cryptocurrency trading is quite common in Germany. There are many different (unregulated) trading platforms like Binance, Bitfinex, Bitpanda and many more platforms on which a potential investor can buy and trade cryptocurrencies. In the near future, the Stuttgart stock exchange is planning a regulated market for cryptocurrencies called “Bsdex” which allows only Bitcoin trading at first, but then shall expand its offering of cryptocurrencies on other cryptocurrencies as well.
While many retail investors invest in cryptocurrencies, certain financial institutions are sceptical when it comes to Bitcoin and other cryptocurrencies. Markus Müller, worldwide leader of the Chief Investment Office of Deutsche Bank, states in an interview with Bloomberg News, that the high volatility, price-manipulations, as well as data-loss and data-theft can cause problems.
A study conducted by the Irish Times in 2018 suggests that approximately 120,000 people in Ireland own cryptocurrency, a 300% increase on the previous four years. This study also suggests that, at some stage in recent years, more than 180,000 people have traded or used Bitcoin.
Irish financial institutions have stated that they have not imposed restriction on the purchase of cryptocurrencies, like some financial institutions in the UK, but it has been reported by crypto and blockchain companies in Ireland that they have had difficulty opening bank accounts due to concerns regarding the sourcing of funds.
In the absence of precise data, it is difficult to understand how common the cryptocurrency trading phenomenon is in Italy. However, the last few years have seen a sharp rise in the number of platforms and exchange websites created by Italian developers and private companies to enable cryptocurrency trading. That said, mainstream financial institutions are still cautious of cryptocurrency trading, particularly given the several warnings issued by Italian and European regulators. Last year the BoI issued a communication declaring its adherence to the warning from the European Supervisory Authorities (ESAs) regarding virtual currencies and discouraging Italian banks, other supervised entities and consumers from buying or selling virtual currencies following several scandals involving cryptocurrencies . And Consob recently published a consumer warning regarding cryptocurrency-related risks .
According to the statistics published by the JVCEA, the total volume of Crypto Asset spot trading handled by Exchange Providers in Japan as of September 10, 2019, is approximately 838 billion JPY . In the meanwhile, the total volume of Crypto Asset margin trading handled by Exchange Providers is approximately 2,872 billion JPY. These statistics clearly show that Crypto Asset margin trading is more prevalent than Crypto Asset spot trading.
Even though Crypto Asset margin trading is regulated in many countries, it is not regulated under the PSA and FIEA. With that said, Crypto Asset derivatives transactions will be regulated under the FIEA Revisions for the protection of users. Certain regulations will also be established under the FIEA Revisions to ensure the proper conduct of such transactions. Specifically, for the purposes of subjecting derivatives transactions involving “Financial Instruments” or “Financial Indicators” to certain entry regulations and rules of conduct issued under the FIEA, the definition of “Financial Instruments” will be amended under the FIEA Revisions to include (i) “Crypto Assets” and (ii) “standardized instruments created by a Financial Instruments Exchange for purposes of facilitating Market Transactions of Derivatives by standardizing interest rates, maturity periods and/or other conditions of (Crypto Assets)”. Further, under the FIEA Revisions, the prices, interest rates, etc. of Crypto Assets will be incorporated into the definition of “Financial Indicators”.
Since Crypto Assets will be included in the definition of Financial Instruments, the conduct of Over-the-Counter Derivatives Transactions related to Crypto Assets or related intermediary (baikai) or brokerage (toritsugi) activities will also constitute Type I Financial Instruments Business unless relevant exemptions are applicable. Accordingly, business operators engaging in these transactions will need to undergo registration as Financial Instruments Business Operators in the same way as business operators engaging in foreign exchange margin trading.
Some mainstream financial institutions seem to be embracing crypto currencies, with one Liechtenstein bank in particular offering various solutions for crypto including cold storage. Furthermore, multiple banks are willing to accept crypto clients, a trend which is uncommon in most jurisdictions. In terms of trading, a worldwide crypto exchange recently announced plans to launch in Liechtenstein.
Cryptocurrency trading is relatively common in the Netherlands. According to AFM research on cryptocurrency trading in the Netherlands, 150,000 people owned cryptos in September 2017, and within four months, (January 2018), this number had nearly quadrupled to 580,000. However, by October 2018, the figure had dropped to 480,000. According to the AFM, the most recognised risk factors for consumers are collapsing value, price manipulation and a lack of supervision. Participants in ICOs see a similar picture.
According to the recent statistics issued by DataLight there are more than 3 million crypto traders in Russia and for this index Russian currently occupies the 5-th place of the world rating (the first one belongs to USA with more than 22 million traders). At the same time the relevant legislation governing cryptotrading is still not adopted, so all such transactions performed in Russia remain in the legal shadow and without any potential enforcement (despite the fact that there are some court decisions allowing de facto the transactions with cryptocurrencies – see more specifically the Q.18).
There are a number of leading cryptocurrency exchanges operating in Korea that allow consumers to exchange cryptocurrency with fiat currency or other cryptocurrencies. Korea is one of the global leaders of cryptocurrency trading in terms of volume and has one of the highest penetration of cryptocurrency ownership by its residents. At one point in 2017, Korea experienced a dramatic increase in the volume of cryptocurrency trading for a 24-hour period during which Korean cryptocurrency exchanges averaged up to around USD 6.9 billion in trading volume. In response, the Korean government formed an intergovernmental task force to create and implement cryptocurrency regulations. Cryptocurrency trading continues to expand, as evidenced by the fact that the total amount of cryptocurrency funds linked to Korean bank accounts has increased by more than 14 times over the past three years.
We would not consider cryptocurrency trading “common” in Sweden. Trading in bitcoin is possible through certain marketplaces by purchasing a variety of financial instruments. Financial institutions are receptive to the long term development of cryptocurrencies, but are generally advising customers to be cautious in relation to cryptocurrencies as an investment. At least one major Swedish bank is restrictive with allowing customers to purchase cryptocurrencies.
Trading in crypto currencies can at this point be considered a fairly common activity in Switzerland. Both individuals and financial institutions engage in crypto trading. There are a number of professional Swiss financial intermediaries that offer exchange or trading services relating to crypto currencies that do not qualify as securities under Swiss law.
Some Swiss banks have taken up services for their clients relating to crypto currencies. That said, many still have a reserved attitude towards clients with major crypto currency holdings or those that are active in crypto currency related businesses. In 2018, with the goal of alleviating certain concerns and supporting member banks in their approach towards new types of clients, the Swiss Bankers Association (SBA) published guidelines on the opening of company accounts for blockchain companies. In August 2019, the guidelines were updated with new terminology and content. The SBA guidelines specifically address client due diligence aspects, expectations with respect to token issuers as clients and explanations regarding specific business models.
Cryptocurrency trading is common in Uganda, but mainstream financial institutions have been either dismissive or cautionary. Some have indicated that they are waiting for guidance from the regulator before they can issue a formal position. Traders are working both with the available exchanges and in Over the counter – like structures.
According to the BoE in a submission from May 2018, cryptocurrencies are not widely accepted as a means of payment in the UK, with no major UK high street or online retailer accepting the most common cryptocurrency Bitcoin. While the BoE estimates that around 500 independent stores do accept Bitcoin, this amounts to an average of less than one per town in the UK.
Investment and trading in cryptocurrencies is likely somewhat more common, though, with a number of large cryptocurrency exchanges offering direct exchange of Pounds Sterling for Bitcoin and other cryptocurrencies. According to Coin ATM Radar, there are also 275 Bitcoin ATMs in the UK. It is therefore relatively simple for individuals and organisations to buy and trade cryptocurrencies. While the pseudonymity afforded by most cryptocurrency networks means it is difficult to compile geographical statistics on cryptocurrency investment, the Cryptoassets Taskforce in its October 2018 report noted that online consumer surveys had found that 5-10% of respondents reported owning cryptoassets, with the figures for the general population likely to be lower. A March 2019 survey commissioned by the FCA of about 2100 UK consumers aged over 16 found that about 3% had bought cryptocurrencies in the past with only about 1 in 4 able to identify what a cryptocurrency is.
The Cryptoassets Taskforce also observed in its report that while a number of online cryptoasset exchanges operate in the UK, only around 15 of a global market of 206 were headquartered in the UK. Of these 15, the 12 with visible trading activity accounted for around 2.66% of daily global trading volumes.
By contrast, mainstream financial institutions have remained fairly sceptical of cryptocurrency investments. This may also be influenced by the PRA’s warning discussed at question 7 above. The BoE in March 2018 observed that systematically important UK financial institutions had negligible exposure to cryptoassets and to the ecosystem around them.
There is a multitude of cryptocurrency exchanges, which allow consumers to exchange their cryptocurrency into various assets, whether it be fiat or other cryptocurrencies. These are for the most part largely provided online but there are a few brick-and-mortar businesses as well. There are a few mainstream financial institutions that offer limited access to a limited number of cryptocurrencies as well. Nevertheless, with the 2018 Bitcoin crash, there has been some hesitation among the largest financial institutions to transact in cryptocurrencies. For example, Goldman Sachs announced in early 2018 that it was planning to open a Bitcoin trading operation but the plans have likely been paused. The hesitation is likely caused by increased business risk and decreased demand from customers following increased SEC enforcement in the wake of the crash and other sources of regulatory uncertainty. The many failed applications to the SEC for approval to offer an Exchange Traded Fund backed by Bitcoin illustrates the regulatory risk for even established financial institutions entering the cryptocurrency market. In addition to federal regulation, some states have been active in regulating exchanges and trading activity; for example, the New York State Department of Financial Services adopted a set of regulations requiring a “bitlicense” to engage in any “virtual currency business activity”. Nevertheless, Baakat, a bitcoin futures exchange and digital assets platform, will launch with approval on September 23, 2019 as a product of the Intercontinental Exchange, the parent company of the New York Stock Exchange.
Relative to the general population of Singapore, cryptocurrency trading probably remains a niche interest activity. Notably, the recent position of the Singapore government is that the nature and scale of cryptocurrency trading in Singapore does not pose risks to the safety and integrity of Singapore’s financial system. However, the MAS is watching developments in blockchain and cryptocurrency closely.
Generally, mainstream financial institutions have taken a more cautious and conservative approach when dealing with cryptocurrency firms, and by extension, cryptocurrency trading. Some businesses providing cryptocurrency and payment services have had difficulties with banking connectivity. However, the MAS has expressed its willingness to aid cryptocurrency firms having trouble setting up local bank accounts. Nevertheless, it is not planning to create an extremely lax regulatory environment in order to attract cryptocurrency businesses.
As described in the response to question 10 above, a joint report published in June 2018 by PwC and Crypto Valley ranked Hong Kong as one of the top ten countries for ICOs in the first half of 2018 based on funding volume, with US$223m raised across 20 closed ICOs and with 15 more planned. The report also ranked Hong Kong second for ICOs by funding volume across Asia, behind primary hub Singapore.
According to a December 2018 report by CryptoCompare, a global digital currency data provider, Hong Kong ranked second globally for monthly cryptocurrency trading by volume in December, based on legal jurisdiction of exchange, with US$32.5 billion worth of cryptocurrencies traded.
Local interest in cryptocurrencies saw a surge in the third quarter of 2019, with local peer-to-peer Bitcoin trading platform LocalBitcoins reportedly recording its highest ever weekly trading volume (in excess of HK$12 million) in the final week of September. The spike has been reported by some sections of the media as being linked to the ongoing anti-government protests that started in June 2019 in response to a controversial China-sponsored extradition bill, and more specifically a perception that the Hong Kong Government has been tracking digital payment habits to follow the protestors, prompting people to switch to physical cash (demonstrated by reports of ATMs across the city running out of money) and cryptocurrencies.
This can be contrasted with the generally cool reception to cryptocurrency trading amongst mainstream financial institutions in Hong Kong. This has been shaped in part by the attitude of the HKMA, as evidenced by the HKMA BCBS Circular published on 18 March 2018, in which the HKMA stated that authorized institutions planning to engage in activities relating to cryptoassets should discuss with the HKMA and demonstrate that they have put in place appropriate systems and controls to identify and manage any risks associated with such activities.